Season of benefits for reviving policies

Insurers are willing to go the extra mile to lure back customers; however, accept that offer only if you really need it

No medical tests, easier underwriting norms and discounts on penalties – life insurers are going all out to woo back customers. For a good reason, too. With 16 million traditional policies lapsing in 2011-12, the percentage of lapsed policies to the total number is as high as 50 per cent for some insurers, a clear reason to worry.  

While the number of lapsations in unit-linked policies is not available, those in the sector say many policy holders who bought in the heady stock market days of 2007-08 have stopped paying their premiums due to anxiety over falling returns.

The ‘special revival campaigns’ are inviting. For example: Reliance Life Insurance, whose scheme will run till September-end, has entirely waived the premium on policies for a two-year lapsed period. It has also waived medical tests and relaxed the underwriting norms. Life Insurnce Corporation is giving a discount on penalties up to a maximum of Rs 1,000. Max Bupa and Aegon Religare are planning similar campaigns in the coming months.

Says Anisha Motwani, chief marketing officer at Max Life insurance, “We are rolling out a campaign next month in which the individual can give an e-declaration instead of getting it in a physical form.”

Should you take advantage of these special revival packages? It is a tough question to answer. “If the policy has lapsed due to your laziness, then it makes sense to revive it. And, don’t make the mistake of lapsing again,” says certified financial planner Gaurav Mashruwala.

There is a time benefit as well. Generally, to revive a lapsed policy, beside paying the previous premiums, plus interest of nine to 12 per cent on that, the re-filing of documents and medical tests take 10-14 days.

However, a large number buy these for all the wrong reasons. There are many who buy for the tax advantage and, then, forget to renew. For such persons, it’s important to check if you really need the policy.  If your provident fund amount has risen in recent years to cross the Section 80C benefit limit of Rs 1 lakh and you have adequate life cover, there is no point in reviving this policy. You can choose to go for the paid-up option (where the policy pays an amount on maturity) or surrender it. “Don’t bother to revive policies simply bought for tax advantage or if you don’t need these because it will only increase the burden on finances,” says another financial planner.  

Then, there are those who bought Ulips (unit-linked insurance) to take advantage of the market condition. For them, the advice is simple:

Insurance is not investment. If a Ulip is being revived, some insurance companies allow you to use money from the fund value to make the payment for the premium towards its revival. You can take this option because it does not mean more financial commitment. In other words, renew only those policies that are worth the revival.